How I Became a Value Investor

A writer’s conference that I attended last week gave me a new idea for the site. The idea is that people enjoy reading feature articles written in a narrative format much more than the enjoy those written in a news or interview format. Therefore, I decided a great feature would be about how people become value investors.   My idea is that I’ll find people who are devoted value investors and write about how they came to find this successful strategy.  I will start with myself and then open it up for others to share their stories as well. If you would like me to write a story about how you became a value investor, or would like to tell other readers the story yourself please write to me at ben@moderngraham.com.Let’s move on to my own story…

When I was younger I was always interested in ways to make money.  I once created my own bank and would allow my family to deposit funds (whatever spare change they had).  I kept a record and eventually would loan out the cash for some nominal interest.  Another time I started a lawn-mowing business with one of my friends down the street.  I just always wanted to find a new way to bring in some money. 

Then at one point my father introduced me to investing.  My grandparents had just generously given each of their grandkids $100, and I remember my dad saying, “If you invest that $100, maybe next year it will be worth even more than that!”  Excited about the idea of having a higher amount (I believe I was dreaming that it would turn into $1000 or better), I agreed and we began looking at different companies to purchase.  My dad was a very average investor at the time and did not follow a value investing strategy.  However, he did have a subscription to Value Line and we used that to our advantage.  Our investment choice was Priceline.com.   

Priceline was going through some rough times and the price of the company was down to about $2 per share (due to a 1:6 split in 2003, the price comparable to today would be about $12 per share).  We waited about 8 months and sold when the price was about $8 per share ($48 per share comparable to today) – a very significant profit.  I was ecstatic and immediately we sought to reinvest some of the funds.  I decided to use the $300 profit to buy something and reinvested the original $100.  This time we picked the bankrupt and depressed K-Mart. 

As big of a lesson our investment in Priceline was (that investing can be an excellent way to build wealth), the investment in K-Mart was even more important for me.  The thought was that K-Mart would recover when it exited the realm of bankruptcy court and a nice profit would be had.  Unfortunately, that was definitely not the case.  About a year passed and the price had dropped in half.  Then it was announced that the outstanding common stock would be expired, making it completely worthless, and new shares would be issued to pay the creditors.  I lost the entire $100 investment I had made but I learned about the riskiness of equities. 

A few years went by and I avoided the market.  I graduated from high school, started college and started to pursue a degree in finance.  Then came the finance honors program and one of my favorite professors who holds a doctoral degree in finance from the University of Chicago.  One day after class, I asked him if he could recommend any books about investing.  He jumped on the opportunity and suggested The Intelligent Investor and The Warren Buffett Way.  I was a part of a group that would be competing in an investment competition the next year and I immediately suggested that we all read both of the recommended books during the summer. 

I remember starting reading The Intelligent Investor and having trouble putting it down.  My wife, at the time my fiancé, and I even once had an argument because I wouldn’t put the book down for more than an hour.  I simply was captivated by Graham’s writing and theories.  Once I had finished I gave Jon Ritchie a call to talk to him about the book.  He had felt the same way and I suggested we start a website to try and take what we learned from Graham and implement it in today’s world.   

From that point on, I have been a value investing junkie. 

Do you have a good story to tell about how you became a value investor?  We’d like to feature it on our site.  Contact Ben at ben@moderngraham.com for more information. 

 


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